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That's Not Fair! Equity Theory at Work
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That's Not Fair! Equity Theory at Work

Suppose you were working a summer job where everyone makes around $12/hour and your boss announced that she was raising salaries so that everyone at the company will now make at least $15/hour? You’d be pretty happy right? At Gravity Payments the CEO took a huge cut in pay and announced that every employee would make a minimum of 70K/year.

 

A lot of employees received huge raises as a result. And they celebrated. According to one source, “…grown men cried”

 

equity-theory-outcomes.jpg 

But it backfired.

 

Why? Suppose you were working at this company and making, say, 72K/year. This move by the boss wouldn’t affect you at all. However, the person down the hallway, who you knew was a “slacker” and making 55K, just got a huge raise. That would probably make you pretty mad.

 

That’s an example of the importance of the Equity theory of motivation. Your salary is an “outcome” in this theory and ideally your salary is fairly determined based on your “Inputs” (your degree, your experience, your skills, etc.) and if some slacker down the hall gets a huge raise and you don’t get any raise – how do you feel? How is your job satisfaction affected? Your level of productivity? Might you now work less hard and not more for this company? Studies say: yes.

 

How Your Office Affects You

 

Your salary isn’t the only “outcome” you get from your job. How about this one: the size and location of your office. Some people have big offices with great views and some (those with less experience, fewer skills, etc.) work in cubicles.

 

 smallOffice.jpg

 

 

If you had a nice office, would you suddenly work less hard if you were moved to a smaller one?

 

The answer is yes. The size of your office is another “outcome” your company gives you and if it’s tiny, this could affect your productivity.

 

Researchers did a unique study in an insurance company using underwriters (employees who evaluate insurance claims). For two weeks underwriters had to be temporarily relocated to other offices due to building renovations,  Some underwriters moved to nice, large offices while others moved to smaller offices.

 

The results? If you were relocated to a smaller office than your co-workers your productivity declined for those two weeks. It returned to normal levels when you were sent back to your original office.

 

We often think that salary is the only thing companies give to their employees. But as this study shows, a lot more goes into it. And that’s why not everyone was happy with a 70K minimum wage for all employees.

 


Want to give your students an assignment based on these findings? In WebAssign, feel free to make a copy of assignment 13816305 (Equity Theory of Employee Motivation). The assignment has three questions containing data similar to the study. Employee productivity was not significantly different prior to the office reassignment, then was significantly different during the reassignment and finally was not significantly different again after the study. Students will get experience with hypothesis testing and the calculation of t-tests.

 

Resources:

 

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